2018 (7) TMI 1167 - AT - Income Tax

Rejecting the books of account u/s 145(2) - addition on estimation basis @7% on account of construction receipts - Held that - The undisputed fact remain that the assessee has failed to submit the quantitative details of the trading operations as well as details of construction activities carried out by him during the impugned AY. AR is merely harping on the point that the assessee was a listed public company and therefore, the books could not be rejected by Ld. AO and the profits could not be estimated by lower authorities. We are not convinced with the same since the complete onus to substantiate the financial results was on assessee which he has failed to discharge. Rather this argument put more onus on assessee to support the transactions carried out by him with documentary evidences and plausible explanation. Further, in terms of Section 44AA, the assessee was required to keep and maintain books of accounts and other documents as may enable the Ld. AO to compute the total income in accordance with the provisions of the act. Therefore, Ld. CIT(A), in our opinion, erred in shifting the onus upon Ld. AO to provide relief to the assessee since even the primary onus of substantiating the transactions remained un-discharged by the assessee. No quantitative details could be filed by the assessee with respect to trading done by him and further no details with respect to construction activities as called for by Ld. AO were furnished by the assessee. In such a situation, Ld. AO was left with no option but to reject the books and estimate the income of the assessee on some reasonable basis. The same is evident from the fact that Ld. first appellate authority has also confirmed the stand of Ld. AO in estimating the income from construction activities. So far as the Tribunal s order for AY 2007-08 is concerned, we find that the same could not help the assessee in any manner since the matter is factual one and secondly, in that year, Ld. AO, by mistake, estimated the additions by invoking the provisions of Section 44AD/44AF, which is not the case here. Further, the status of assessment / appellate proceedings for intervening AYs i.e. 2008-09 to 2010-11 has not been placed before us to appreciate the position therein. Keeping in view the fact that the assessee is corporate assessee and subjected to statutory audits and therefore, the books could not rejected in a light manner, the matter stand remitted back to the file of Ld. AO for readjudication with a direction to the assessee to substantiate the transactions carried out by him by way of trading as well as by way of construction activities failing which Ld. AO shall be at liberty to adjudicate the issue on the basis of material / explanation available on record. The order of Ld. first appellate authority, to that extent, stands reversed.

Summary

Issues Involved:
1. Rejection of books of accounts under Section 145(2) of the Income Tax Act, 1961.
2. Estimation of net profit percentage on trading and construction activities.
3. Additions on account of alleged bogus purchases and mismatch in Annual Information Return (AIR) data.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(2):
The Ld. Assessing Officer (AO) rejected the books of accounts of the assessee, citing the failure to provide requisite details regarding construction activities and the non-responsiveness of parties to whom notices under Section 133(6) were issued. The AO suspected circular trading due to the nature of transactions with certain parties. The Ld. Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the rejection of books for construction activities but disagreed with the rejection for trading activities, noting that the AO did not find specific defects in the trading books and based the rejection on suspicion rather than concrete evidence. The Tribunal found that the AO was justified in rejecting the books due to the lack of quantitative details and the non-cooperation of the assessee in providing necessary documentation.

2. Estimation of Net Profit Percentage:
The AO estimated a net profit rate of 1% for trading activities and 8% for construction activities, leading to significant additions to the assessee's income. The CIT(A) reduced the net profit rate for construction activities from 8% to 7%, acknowledging the absence of a stock register but noting that the assessee, being a public limited company, maintained regular books of accounts. The Tribunal, however, found that the primary onus to substantiate financial results was on the assessee, who failed to discharge this responsibility. Consequently, the Tribunal remitted the matter back to the AO for re-adjudication, directing the assessee to substantiate the transactions; otherwise, the AO could adjudicate based on available material.

3. Additions on Account of Alleged Bogus Purchases and Mismatch in AIR Data:
The AO made an addition of ?2.73 Lacs on account of alleged bogus purchases and another ?2.73 Lacs due to a mismatch in AIR data. The CIT(A) did not specifically address these additions in detail but focused on the broader issues of book rejection and profit estimation. The Tribunal's decision to remit the matter back to the AO implicitly includes re-examination of these specific additions, as the AO is directed to re-adjudicate the entire issue based on substantiated transactions and available records.

Conclusion:
The Tribunal allowed both the appeals for statistical purposes, remitting the matter back to the AO for re-adjudication. The assessee is directed to substantiate the transactions related to trading and construction activities, failing which the AO is at liberty to adjudicate based on the available material and explanations. The Tribunal emphasized the importance of maintaining proper documentation and substantiating financial results, especially for a public limited company subjected to statutory audits.